Not counting the spoiled princesses, most of us grads have to deal with student loans. Sure, there have been talks of congress trying to revamp the whole student-loan program. That’s fantastic, but what the Hell should we do now? I have a friend that owes 30k with Sallie Mae, the biggest name in student loans. And she sounds like a total bitch. My education was my parents number one priority, which I appreciated by going to UC Santa Cruz and achieving a G.P.A. of 3 rainbow stickers and 2 unicorn ones at their ultra-liberal university. And those unicorn ones are hard to get. Anyways, here are some tips on how to deal with student loans when you enter the real world.—James Y Lee
Which Loans Should you Take Out?
“We recommend that students first apply for federal loans through the FAFSA,” says Cheryl Resh, UC Berkeley’s Director of Financial Aid. “Apply for private loans only if your need is not met by federal, state and institutional financial aid.” Make sure you try your best to max out on Federal loans, specifically the Stafford loan which offers 5,500 for Upperclassmen, 4,500 for Sophmores, and only 3,500 plus a swirly for Freshmen. Repayment and kneecaps are threatened usually six months after graduation.
Most likely you’ll still be needing some extra cash for Whatever101. Your school has a preferred lender list, but you have the legal right to get your loans from anywhere. That means you should take a look at your options by finding the lowest interest rate at a site like SimpleTuition. Try to get a co-signer to improve your approval chances. Also, be sure to check out FinancialAidLetter to decode all that gibberish sent from the financial aid office.
Payment Plan After Graduating
As gross as it may sound, but repayment periods can range from 10 to 25 years. That means when you’re in your 40s, you could still be paying for that bullshit introductory class on Elvis. If you’ve graduated with a finance degree and have jobs lined up, a standard 10 year repayment plan will work for you and might even take less than a friggin’ decade to pay back. However, if you’ve got, let’s say, a Literature degree even though your mom was all like, “James, you’re only making it harder on yourself,” and you didn’t care what she said…well, you’re going to start caring a little bit more as you’ll have to go with a longer plan, which means lower monthly payments, but paying more over time.
There’s always consolidating all your loans and combining all of them into one big giant monster. This can help you by giving you one new interest rate and save you the time from having to mail several different payments out each month, where each loan has a separate interest rate and payment schedule. However, this will result in a longer repayment period, and once again, cost more in the long run. In other words, your payment plan will depend on if you listened to your mom or not.
Getting Behind on Your Payments
Ok, shit. You forgot/don’t have the money to fork over enough scratch for your monthly payment. Nobody’s perfect, it’ll be OK. Did you consolidate your debt already? If you consolidate your loan now, you will be given a new set of terms. This is one way to defer your payments without affecting your credit rating, which you may not want to take a shit on if you plan on buying anything of significance. You can politely ask private lenders for some more time, but they may throw a fee or quarterly interest payments at your face. Your best bet is to call them up and explain the situation and really play out your economic hardship, including your unemployment status and other details. If you’re temporarily disabled, this may be a good time to bring it up.
Defaulting on Your Loan
OK, that was a big mistake on your part. If it’s been 270 days and you haven’t made a deferment, prepare to feel some wrath: The IRS will not give back your tax refund, you’ll end up having collection agencies on your ass and having to pay more than you owe, and they’ll rape your paycheck by taking 15% of it.
Get into rehab, a Loan Rehabilitation Program that is. This will help delete that default status and get you on the right track. If you’re still in school, you’re going to really have to do your homework now by finding a way to cancel that student loan. If you have a federally-funded Perkins Loan, it can partially be canceled if you volunteer for the Peace Corps or suddenly become a full-time cop. If you’ve already graduated, you can try to dodge the bullet by filing bankruptcy, but only if it’s been at least seven years since your first payment.
Just to let you know, failure to repay your defaulted loan can be damaging to your credit record. Agencies can continue to report an account for seven years from the opening date. That’s about how long it takes to digest your damn gum, so good luck with all that.
Run Away From it All
And of course, you can just run away from all your problems. Here's a site that will sell you a book on How to Change Your Identity & Erase Bad Credit and another one that will help you change your ID for you.
However, here are some resources if you decide to face the music:
Fed Direct Loan Servicer on consolidation information 800-557-7392